Question

X Company is considering buying a part next year that they currently make. This year's production costs for 3,000 units were as follows:

		Per-Unit	Total
Direct materials		$2.76	$8,280
Direct labor		3.75	11,250
Variable overhead		3.60	10,800
Fixed overhead		5.00	15,000
Total		$15.11	$45,330

A company has offered to supply this part to X Company for $13.34 per unit. If X Company accepts the offer, it will avoid fixed costs of $7,950, and it will be able to lease the resources that will become available from not making the part for $2,300. At what production level would X Company be indifferent between making and buying the part next year?

Answer 1

The answer has been presenetd in the supporting sheet. For detailed answer refer to the supporting sheet.